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Pricing concerns cloud ResMed’s solid earnings

SAN DIEGO – Whether or not ResMed is giving steep discounts to cash-strapped HME providers was the hot topic during an Aug. 1 call to discuss the company’s recent earnings.

An analyst asked company officials if there was any truth to “widespread comments” from providers that they’re receiving 20% price cuts from ResMed and other manufacturers to help them absorb the, on average, 47% reduction in Medicare reimbursement for sleep therapy devices and supplies as part of Round 2 of competitive bidding.

“We’re not going to talk about specific deals or specific customers,” said Jim Hollingshead, president of the Americas. “Our practice in pricing remains as it always has been: We use pricing strategically. So when we do deals with customers, we’re doing them because we’re either getting volume or we’re getting share. We’re doing something that makes sense for us and customers.”

ResMed reported revenues of $414.6 million for the fourth quarter ended June 30, 2013, compared to $317.9 million for the same period last year, an 11% increase. It reported a net income of $73 million vs. $76.8 million.

The company reported revenues of $1.5 billion for the year vs. $1.37 billion for 2012. It reported a net income of $307.1 million vs. $254.9 million.

ResMed officials acknowledge they have seen some pricing pressure in the run-up to Round 2. But more importantly, they say, the company is helping providers address tough times with products that are effective and solutions that create efficiencies.

“Price is an issue in the marketplace and (Round 2) is an issue in the marketplace,” Hollingshead said. “But it has, bluntly, been overblown. The way people are looking at the market broadly is that it’s painful for our customers and we’re working through that with them.”

Traditionally, ResMed cuts prices 3% to 5% in any given year, but company officials acknowledge that figure is now more in the 4% to 6% range. Despite this, ResMed plans to maintain margins with, among other things, reductions in its cost structure and gains in volume.

“This is not a Coke vs. Pepsi in a limited soft drink market growing 0% to 3%,” said Mick Farrell, CEO. “This is about a market where we’re less than 10% to 15% penetrated, even in the U.S., which is the most penetrated of all our geographies. It’s about the 85% in front of us.”

Going forward, ResMed officials confirmed a market growth outlook of 6% to 8% globally, as well as in the Americas—“a pretty darn good growth rate for med tech,” Farrell said.